Online retailing giant Amazon.com Inc’s attempt to foil Future Retail Ltd’s (FRL’s) decision to sell its retail, wholesale and logistics and some other businesses to Reliance for Rs 24,713 crore throws up many questions about business practices and respect for the rule book.
Amazon on October 25, won a temporary injunction from the Singapore International Arbitration Centre (SIAC) asking Future Group to hold its sell-out plans to Reliance Group until the arbitration court passed its final judgement.
Amazon had approached SIAC, arguing that the Reliance-Future deal amounted to a contractual breach as the US-headquartered ecommerce giant held an indirect stake in Future’s brick-and-mortar retail business FRL.
At the centre of the dispute is Amazon’s 49 per cent stake in one of Future's unlisted firms, Future Coupons Limited (FCL), which it had bought last year. Future Coupons owns a 7.3 per cent stake in FRL.
To the whole world, indeed for India, Amazon is a colossal online market place, where millions of traders hawk their goods to millions of customers. Nothing wrong in that, except that it may have quietly extended its arms to India’s vibrant and bustling offline retail space, without saying so.
The bigger question here is the spirit and intent behind Amazon’s investment in FCL and its ongoing attempt to scupper the Future-Reliance deal.
Does Amazon intend to get into the brick-and-mortar retailing space, or these investments and legal efforts are tactical moves aimed at scuttling competition to remain a dominant player in one of the world’s fastest growing retail markets?
Amazon also faces some issues of corporate conduct in India, with many seeing the company’s refusal to send a representative to last week’s Parliamentary Committee meeting as nothing short of disrespect and defiance.
There are two other areas where Amazon, perhaps, has to demonstrate greater correctness in corporate conduct. One relates to the aspect of “country of origin”.
Rules now mandate that the onus is on the e-commerce marketplace to disclose the country of origin of products, or places at which these are made, so that the customer can make informed choices about products from countries they wish to avoid.
This rule came in the wake of India’s growing border tension with China, amid calls of boycott of goods from the eastern neighbour with whom an eyeball-to-eyeball confrontation is currently on in the icy Himalayan heights.
Reports suggest that Amazon is still to adhere to this rule to label the country of origin tags on goods sold on its platform.
Another crucial aspect is Amazon’s relationship with some of its sellers, with questions on the opaqueness of the association.
It appears that this issue not just limited to India. The US House Judiciary Committee recently found that Amazon had monopoly power over third-party sellers on its marketplace.
The Committee, reports suggest, has favoured breaking up the third-party vendors’ marketplace and the cloud computing business into separate bodies.
In India, eyebrows have been raised about the Jeff Bezos-led company’s attempts to operate outside of the regulatory boundaries.
Online retailers are also not allowed to strike exclusive deals to promote brands through flash/festive season sales. This has been a popular practice over the last few years that most mobile phone companies have adopted to push their new launches.
Smartphones and electronic products contribute about 50 percent of overall e-commerce sales in India, followed by fashion and apparels (about 30 percent) and home furnishings (about 9 percent)
Amazon, however, reportedly has tied up with Chinese brand mobile OnePlus to sell the 8T phone exclusively on its site, which, if true, amounts to flouting of rules.
These rules, which came into effect a year ago, were aimed at levelling the field among online and offline retailers. Offline retailers have been lobbying the government that online marketplaces, flush with foreign money, are driving brick-and-mortar stores out of business.
Offline retailers say that e-tailers such as Amazon were adopting “discriminatory” and “predatory” pricing to attract customers by offering deep discounts. Smartphone flash sales and festive season sales of fashion and electronic products were examples of such destructive pricing.
E-tailers get into exclusive tie-ups for deep discounts with brands and also push products of preferred vendors which they partly own or have preferential contracts.
Such heavy price markdowns, while very attractive for consumers, appear to have seriously impacted the business of mom-and-pop stores as also large offline retailers selling the same brands
Indian rules do not allow online retailers from selling products of companies in which they own stakes.
According to the rules, a vendor/seller will be deemed to be controlled by e-commerce marketplace entity if more than 25 per cent of its total sales are made to a single online marketplace.
Amazon has, reportedly, invested in joint ventures to create vendors (Cloudtail and Appario Retail), which sell on its platform.
This may be in violation of “Press Note 2” of 2018 that states: “Inventory of a vendor will be deemed to be controlled by e-commerce marketplace entity if more than 25% of purchases of such vendor are from the marketplace entity or its group companies.”
This, according to one strand of thought, amounted to product subsidisation by e-commerce players, which went against the spirit of an online marketplace, which, by definition, has to be vendor neutral.
This partisan relationship with select vendors was actually dealing the heaviest blow to the apparel and home furnishing traders amid plunging footfalls in India's storied retail districts such as Delhi's Chandni Chowk.
(Gaurav Choudhury is a senior journalist and media entrepreneur. He is founder and CEO of Earshot Media, a new digital destination for audio originals.)
Disclaimer: Reliance Industries (RIL), which also owns Reliance Retail, is the sole beneficiary of Independent Media Trust which controls Network18 Media & Investments
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